Klarna Is Set to Take on U.S. Point-of-Sale Lenders

The Swedish point-of-sale finance company quietly put up ads in the U.S. last year but made a splasher introduction earlier this month when Snoop Dogg became the face of its latest campaign.

That campaign, called Smoooth Dogg, featured the Afghan dogs from Klarna’s previous campaigns and coincided with the announcement that Snoop has become a minor shareholder in the fintech startup.

Until this point, Klarna, a European unicorn last valued at $2.5 billion, has been a relatively no-name brand in the U.S. ー of course, the company hopes the Smoooth Dogg campaign will help change that. There are several companies of its kind ー including Bread, Vyze, Afterpay and perhaps best known, Affirm – but the concept hasn’t taken off in the U.S. the way it has in Europe. One big reason for that is the rewards-focused, points-obsessed credit card culture in the U.S. is very different from Europe’s. Klarna offers flexible payment options for consumers, like deferred payments and installment payments. It pays the merchant upfront to protect against fraud and the risk that a customer might not pay, and the consumer pays Klarna for the purchase based on the agreed upon payment plan.

Affirm is the leading player in point-of-sale lending in the U.S. It did more than $2 billion in loans in 2018. The company says it has “millions” of users and more than 2,000 live merchants globally. Before it pivoted to be a direct-to-consumer app, it was able to get its name out to people through its merchant partners ー popular digital consumer brands like Casper, Peloton, and Gilt ー which would advertise the Affirm option on their shopping and checkout pages.

"People use us with a different type of frequency,” Sebastian Siemiatkowski, Klarna founder and CEO, told Cheddar Thursday. "The competitors you mentioned [do more] one-time financing of a big purchase. Klarna is being used frequently, a lot of times for multiple purchases, and there's more than just the financing part of it. There's a beautiful post-purchasing experience, there's helping solve return issues or getting access to customer care. We do a lot of things to prove that user experience to customers."

If the company is successful, that could only add to the credit card industry's existential crisis. Credit card startups offering smoother and less predatory credit products have raised almost $240 million in the last year, and Affirm has said it's out to eliminate credit cards altogether.

To succeed in the U.S., Klarna would have to form merchant partners too, one by one, although a partnership with payments giant Stripe gives the Swedish startup a distribution vehicle. Stripe merchants already have the option to begin offering Klarna as a checkout option, with just the flip of a switch.

“Stripe is a great partnership," Siemiatkowski said. "People are looking for global solutions. We see more and more small retailers looking to sell globally. For us to be active in all markets is super important."

The main difference between the two is while Affirm pushes "honest finance" ー full transparency and clarity on the interest consumers pay for their loans ー Klarna is about flexible finance. It doesn't charge interest to customers and instead keeps the cost within its merchants. How long it can continue to do that remains to be seen.

In turn, Klarna could help with Stripe's European expansion. Klarna has 100,000 merchant partners and 60 million users globally. It has 3.4 million users in the U.S., though that figure is increasing by 17 million a year, according to a company spokesperson.

Klarna has not disclosed the amount of Snoop's investment. In October, retail giant H&M invested $20 million in the company, which also counts Visa as an investor. Siemiatkowski declined to comment on company plans for an initial public offering.